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Octopus Apollo VCT PLC   -  OAP3   

Annual Financial Report

Released 12:22 08-May-2019

Annual Financial Report

Octopus Apollo VCT plc  
Final Results
8 May 2019
Octopus Apollo VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2019.
These results were approved by the Board of Directors on 7 May 2019.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com. All other statutory information can also be found there.

 Year to
31 January 2019
Year to
31 January 2018
Net assets (£’000)119,024130,377
(Loss)/profit after tax (£’000)(1,183)3,699
Net asset value (“NAV”) per share (p)47.150.6
Cumulative dividends paid since launch (p)71.168.0
NAV per share plus cumulative dividends paid (p)118.2118.6
Total return %* (0.8)2.2
Ordinary dividends per share paid in the year (p)3.13.3
Special dividends paid in the year-10.7
Proposed final dividend (p)**1.51.6

*Total Return is an alternative performance measure calculated as movement in NAV in the period plus dividends paid in the period, divided by the NAV at the beginning of the period.

**The final proposed dividend of 1.5p per Ordinary share for the year ended 31 January 2019 will, subject to shareholder approval at the Annual General Meeting, be paid on 9 August 2019 to all Ordinary shareholders on the register on 19 July 2019.

Key Dates

Annual General Meeting                                                               11 July 2019
                                                                                                      4.00 p.m. at 33 Holborn, London, EC1N 2HT

Ordinary Share final dividend payment date                                   9 August 2019

Half-yearly Results to 31 July 2019 published                                September 2019

Annual Results to 31 January 2020 announced                              May 2020

Annual Report and Accounts published                                           May 2020

Chairman’s Statement

Introduction
I am pleased to present the Annual Report of Apollo for the year ended 31 January 2019.

Performance
On a total return basis, after adding back the 3.1p of dividends paid in the year, the NAV has decreased 0.8%.  The NAV plus cumulative dividends has decreased from 118.6p per share as at 31 January 2018 to 118.2p per share as at 31 January 2019. Further details of the year’s performance is highlighted in the Investment Manager’s Review later in this Report.

Investment Activity
In the year under review the Company invested £17.5 million, including £16.4 million into five new investments and £1.1 million in follow-on capital to existing investee companies to continue their growth plans. There were six exits of portfolio companies during the year generating total proceeds to the Company of £1.7 million, in addition to receiving £0.5 million of further deferred sales proceeds from disposals in previous years. 

Dividend and Dividend Policy
It is your Board’s policy to maintain a regular dividend flow where possible in order to take advantage of the tax-free distributions a VCT is able to provide.

The Board has proposed a final dividend of 1.5p per share in respect of the year ended 31 January 2019. This is in addition to the 1.5p interim dividend paid in November 2018, and will bring the total dividends declared to 3.0p for the year. As in previous years, dividends will first be paid out of any revenue reserves, with any remaining balance to be paid from the special distributable reserve. The dividend will be payable on 9 August 2019 to shareholders on the register at 19 July 2019.

Dividend Reinvestment Scheme (DRIS)
In common with a number of VCTs, the Company has a dividend reinvestment scheme which was introduced in November 2014. This is an attractive scheme for investors who do not need income, but would prefer to benefit from additional income tax relief on their re-invested dividend. I hope that shareholders will find this scheme beneficial.

During the year to 31 January 2019 2,901,629 shares were issued under the DRIS, returning £1.4 million to the Company.

Share Buybacks
Your Company has continued to buy back and cancel shares as required. Subject to shareholder approval of resolution 10 at the forthcoming Annual General Meeting (AGM) this facility will remain in place to provide liquidity to investors who may wish to sell their shares.

VCT Regulations Status
PwC provides both the Board and Manager with advice concerning ongoing compliance with HMRC’s rules and regulations concerning VCTs. The Board has been advised that the Company is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.

A key requirement is to maintain at least a 70% qualifying investment level which, at 31 January 2019, was at 92.5%.  The required level will rise to 80% for accounting periods beginning after 6 April 2019, so Apollo will need to be at 80% or higher by 31 January 2020 to maintain its VCT status. 

Annual General Meeting
The Company’s Annual General Meeting will take place on 11 July 2019 at 4.00 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited at 33 Holborn, London, EC1N 2HT. Directions to their office can be found by visiting their website at: www.octopusinvestments.com.

Outlook and future prospects
We continue to be optimistic about the Company’s future investment prospects and its current diverse portfolio. As a result of a significant emphasis on origination activities the investment team has completed five new investments during the year and expects to be able to continue with further new investment activity in 2019.

This position has led myself and the Board to the decision that it is in the interest of shareholders for the Company to raise additional funds. We are intending to launch the fund raising in May 2019 for an initial amount of £20 million, with a £10 million over allotment facility (subject to demand). This will allow the investment team to continue making investments on behalf of the Company, helping to further diversify the assets and create opportunities for future growth. I look forward to addressing all shareholders when the documentation is released in May, with a Chairman’s Statement outlining further details and why I am excited for the opportunity head of us.

Murray Steele
Chairman
7 May 2019

Investment Manager’s Review

Personal Service
At Octopus we focus on both managing your investments and keeping you informed throughout the investment process.  We are committed to providing our investors with regular and open communication.  Our updates are designed to keep you informed about the progress of your investment.

Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs.  We currently manage four VCTs, including this one, and manage over £1 billion in the VCT sector.

Investment Policy
The majority of companies in which Apollo invests operate in sectors where there is a high degree of predictability and/or a strong opportunity for growth.  Ideally, we seek companies that have recurring or repeating revenues from financially sound customers and that will provide an opportunity for the Company to realise its investment within three to five years.

Performance
The Company made a total loss per share of 0.8% in the year to 31 January 2019. Whilst the NAV per share decreased from 50.6p to 47.1p, 3.1p of dividends were paid over the period, bringing cumulative dividends paid to date to 71.1p and the total value (NAV plus cumulative dividends) to 118.2p per share.

While the first half of the year reported a total loss per share of 2.2%, the second half of the year resulted in a recovery in performance yielding a total return of 1.4%. This however was not sufficient to report an overall positive total return for the year. 

The disappointing performance across the year was largely attributable to adverse fair value movements on the three specific investments discussed below, which was offset by a continuation of the strong interest yield from loans made to portfolio companies and positive fair value movements across the rest of the portfolio. 

Portfolio Review
As at 31 January 2019 the Company’s portfolio was comprised of 51 portfolio companies with a total valuation of £86.5 million. This represents 72.7% of the net assets of the fund with 26.5% of the net assets held as cash or liquid assets at the year-end. The portfolio includes ten quoted AIM investments (4.8% of net assets), 12 Octopus Titan VCT plc (an Octopus managed VCT) co-investments in earlier stage businesses (6.3% of net assets), with the balance (61.6% of net assets) being more typical Apollo investments in private companies. 

During the year, the value of the invested portfolio increased by £0.3 million, excluding additions and disposals. The modest increase is as a result of positive valuation movements across a number of investments in the portfolio including the fund’s investment in Healthcare Services and Technology Limited (trading as HAS Technology) and Hasgrove Limited. These increases were offset by negative valuation adjustments during the year from Eve Sleep plc (£1.4 million valuation decrease), Sourceable Limited (trading as Swoon Editions) (£1.2 million valuation decrease), and Coupra Limited (trading as ISG Technology) (£1.1 million valuation decrease), as a result of specific trading performance issues within each business during the year. 

As part of liquidity management during the previous year the Company invested £53.0 million in the Octopus Portfolio Manager (“OPM”) funds. During the current year £35.0 million was withdrawn to fund new investments, dividends and share buybacks taking total holdings at 31 January 2019 to £18.3 million, at year end valuations. Octopus has waived its management fees in relation to OPM to ensure it is not taking fees twice on the same funds under management.

The Company’s investment portfolio is set out below. It continues to hold appropriate investments to meet VCT requirements. The Manager now has the opportunity to make a number of further investments with the aim of building the Company NAV.

Investment Activity
During the year, the Company disposed of six investments for total sale proceeds of £1.7 million. This resulted in a loss of £0.5m on the total cost of £2.2 million. In addition the Company received £0.5 million of further deferred sale proceeds from disposals in previous years, resulting in a net profit of nil over cost on these investments in the year. Positive gains recognised in the majority of the disposals were offset by a £1.1 million loss recognised on the sale of Yu Group plc and a £0.4 million loss on MIRACL Limited which went into liquidation during the period.

The Company made the following new investments during the year:

•         Natterbox £5.0 million – a B2B cloud-based telephony provider, whose offering seamlessly integrates with customer relationship management (“CRM”) software

•         SimplyCook £4.5 million – a direct-to-consumer subscription-based flavourings and recipe company, supplying UK customers and allowing them to cook tastier meals at home

•         City Pantry £3.1 million – an online marketplace facilitating the provision of high-quality catering from local specialist independent food vendors to corporate customers

•         Ubisecure £2.1 million – a customer identity and access management software provider to enable customers to effectively manage their end-users’ digital identities and automate authentication and encryption

•         Triumph Research Intelligence £1.6 million – a software provider to contract research organisations and pharmaceutical companies for the monitoring of clinical research trials

In addition to the new investments above, the Company invested £0.9 million in follow-on capital to existing investee companies to continue their growth plans.

Since the year end, the Company has also made two further investments to date for a total of £7.2 million plus further follow-on funding to selected companies.

Outlook and Future Prospects
We remain optimistic about the Company’s future investment prospects and its current diverse portfolio.

Having adjusted the investment strategy to comply with VCT rule changes, the investment team has increased new investment activity during the year, focusing on growth capital investments. The team has a continued pipeline of new investment opportunities which should support a strong level of new investment activity in the upcoming year. Therefore, and as noted in the Chairman’s Statement we are planning to launch a fund raising in May 2019 in order to fund investment opportunities for the forecast period.

Although Brexit negotiations are still ongoing, and the timing and outcome of these negotiations remains uncertain, we do not believe that the Company has a direct material exposure to the outcome.  Our investment strategy remains on UK-focussed companies with limited international exposure, and we believe that access to new VCT-qualifying growth capital investment opportunities will not likely be directly impacted by Brexit.

If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2295.

Richard Court
Octopus Investments Limited
7 May 2019

Investment Portfolio

Top 10 InvestmentsSectorInvestment cost as at
31 January 2019
£’000
Total movement in fair value since investment
£’000
Fair value as at
31 January 2019
£’000
Movement in fair value in year to 31 January 2019
£’000
% equity held by Apollo VCT% equity held by all funds managed by Octopus
Healthcare and Services Technology LimitedHealthcare7,1861,1968,38262210.010.0
Natterbox LimitedTechnology 4,9904105,4004109.09.0
Anglo European Group LimitedManufacturing5,000965,09628726.726.7
Countrywide Healthcare Services LimitedHealthcare2,6752,2924,96710320.720.7
Simply Cook LimitedConsumer Products4,500-4,500-16.416.4
Coupra LimitedBusiness Services5,000(1,013)3,987(1,098)9.89.8
City Pantry LtdRetail3,1483073,4553078.08.0
Kabardin LimitedEnergy2,4507603,21076049.0100
Dyscova LimitedHealthcare4,700(1,626)3,074-62.262.2
Tanganyika Heat LimitedEnergy4,108(1,372)2,73652449.9100
Other* 43,723(1,992)41,731(1,613)  
Total investments 87,480(942)86,538302  
Current asset investments   18,342   
Cash at bank   13,203   
Debtors less creditors   941   
Net assets   119,024   

*Other comprises the remaining 41 investments whose valuation is outside the top 10: Acquire Your Business Limited, Angelico Solar Limited, Artesian Solutions Limited, Augean plc, Barrecore Limited, Behaviometrics AB, Bramante Solar Limited, British Country Inns plc, Canaletto Solar Limited, Cello Group plc, CurrencyFair Limited, Ecrebo Limited, EKF Diagnostics Holdings plc, Ergomed plc, Eve Sleep plc, Hasgrove Limited, Leonardo Solar Limited, Luther Pendragon Limited, Mi-Pay Group plc, MIRACL Limited, Modigliani Solar Limited, Nektan plc, Origami Energy Limited, Oxifree Group Holding Limited, Pirlo Solar Limited, Red Poll Power Limited, Renalytix plc, Secret Escapes Limited, Segura Systems Limited, Sourceable Limited (Swoon Editions), Superior Heat Limited, Synnovia plc, Tintoretto Solar Limited, Tiziano Solar Limited, Trafi Limited, Triumph Holdings Limited, Ubisecure Limited, Valloire Power Limited, Vertu Motors plc, Winnipeg Heat Limited and Zynstra Limited.

Directors’ Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, Directors’ Report, Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws) including FRS 102 – “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      make judgments and accounting estimates that are reasonable and prudent;

•      state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

•      prepare a Strategic Report, a Directors’ Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that:

•      so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and

•      the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the annual report and the financial statements, taken as a whole, provide the information necessary to assess the Company’s position performance, business model and strategy and is fair, balanced and understandable.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of our knowledge:

•      the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws), including Financial Reporting Standard 102 – “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

•      the annual report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Murray Steele
Chairman
7 May 2019

NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 January 2019 or 31 January 2018 but is derived from those accounts. Statutory accounts for the year ended 31 January 2018 have been delivered to the Registrar of Companies and statutory accounts for the year ended 31 January 2019 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's reports can be found in the Company's full Annual Report and Accounts at www.octopusinvestments.com.

Income Statement

  Year ended 31 January 2019Year ended 31 January 2018
  Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Realised (loss)/gain on disposal of fixed asset investments -(531)(531)4,1864,186
Realised loss on disposal of current asset investments -(127)(127)
Change in fair value of fixed asset investments -3023021,0631,063
Change in fair value of current asset investments ---469469
Investment income 3,4691393,6083,6273,627
Investment management fees (545)(1,634)(2,179)(724)(2,858)(3,582)
Other expenses (2,256)-(2,256)(2,068)(2,068)
FX translation ---44
(Loss)/Profit before tax 668(1,851)(1,183)8352,8643,699
Tax on return on ordinary activities ---
(Loss)/Profit after tax 668(1,851)(1,183)8352,8643,699
Earnings per share – basic and diluted 0.3p(0.7)p(0.4)p0.3p1.2p1.5p

The Company has no other comprehensive income for the period.

Balance Sheet

  As at 31 January 2019As at 31 January 2018
  £’000£’000£’000£’000
Fixed asset investments  86,538 71,326
Current assets:     
Investments 18,342 53,469 
Debtors 2,580 2,074 
Cash at bank 13,203 5,455 
  34,125 60,998 
Creditors: amounts falling due within one year (1,639) (1,947) 
Net current assets  32,486 59,051
Net assets  119,024 130,377
      
Share capital  25,250 25,748
Share premium  53,256 52,162
Special distributable reserve  29,602 40,489
Capital redemption reserve  3,914 3,125
Capital reserve realised  7,698 9,445
Capital reserve unrealised  (696) (602)
Revenue reserve  - 
Translation reserve  - 10
Total shareholders' funds  119,024 130,377
Net asset value per share – basic and diluted  47.1p 50.6p

The statements were approved by the Directors and authorised for issue on 7 May 2019 and are signed on their behalf by:

Murray Steele
Chairman
Company number: 05840377

Statement of Changes in Equity

 Share Capital
£’000
Share Premium
£’000
Special distributable reserves*
£’000
Capital redemption reserve
£’000
Capital reserve realised*
£’000
Capital reserve unrealised
£’000
Revenue reserve
£’000
Translation reserve
£’000
Total
£’000
As at 1 February 2018 25,74852,16240,4893,1259,445(602)10130,377
Total comprehensive income for the year(2,153)302668-(1,183)
Contributions by and distributions to owners:         
Repurchase and cancellation of own shares(789)(3,649)789(3,649)
Issue of shares2911,0941,385
Dividends paid(7,238)(668)(7,906)
Total contributions by and distributions to owners:(498)1,094(10,887)789(668)(10,170)
Other movements:         
Prior year holding gains now realised396(396)
Transfer of translation reserve--10(10)
Total other movements--406(396)(10)
Balance as at 31 January 201925,25053,25629,6023,9147,698(696)-119,024


 Share Capital
£’000
Share Premium
£’000
Special distributable reserves*
£’000
Capital redemption reserve
£’000
Capital reserve realised*
£’000
Capital reserve unrealised
£’000
Revenue reserve
£’000
Translation reserve
£’000
Total
£’000
As at 1 February 2017 22,60334,231  76,144  2,832 (1,537)  7,5206 141,799
Total comprehensive income for the year1,3281,53283543,699
Contributions by and distributions to owners:         
Repurchase and cancellation of own shares(293)(1,639)293(1,639)
Issue of shares3,59417,93121,525
Dividends paid(34,172)(835)(35,007)
Total contributions by and distributions to owners:3,30117,931(35,811)293(835)(15,121)
Other movements:         
Prior year holding gains now realised9,654(9,654)
Cancellation of Deferred Shares – D shares(156)156
Total other movements(156)-1569,654(9,654)
Balance as at 31 January 201825,748 52,162 40,489 3,125 9,445 (602)10130,377

*Included in these reserves is an amount of £36,604,000 (2018: £49,332,000) which is considered distributable to shareholders.

Cash Flow Statement

  Year to
31 January 2019
£’000
Year to
31 January 2018
£’000
Cash from operating activities   
(Loss)/Profit after tax (1,183)3,699
Adjustments for:   
(Increase)/decrease in debtors (506)2,003
Decrease in creditors (308)(2,444)
Loss/(gain)on disposal of fixed assets 531(4,186)
Loss on disposal of current assets 127-
Gain on valuation of fixed asset investments (302)(1,063)
Gain on valuation of current asset investments -(469)
In-specie dividend (139)-
Cash from operations (1,780)(2,460)
    
Cash flows from investing activities   
Purchase of fixed asset investments (17,509)(2,051)
Disposal/(purchase) of current asset investments 35,000(53,000)
Proceeds on sale of fixed asset investments 2,20748,858
Net cash flows from investing activities 19,698(6,193)
    
Cash flows from financing activities   
Purchase of own shares (3,649)(1,639)
Share issues -16,119
Dividends paid (6,521)(29,601)
Net cash flows from financing activities (10,170)(15,121)
    
Increase/(decrease) in cash and cash equivalents 7,748(23,774)
Opening cash and cash equivalents  5,45529,229
Closing cash and cash equivalents 13,2035,455

Post Balance Sheet Events
The following events occurred between the Balance Sheet date and the signing of these financial statements:

•      The Company invested a total of £7.2 million into two new qualifying investments.

•      Four follow-on investments completed totalling £4.0 million.

•    The Company has announced its intention to launch a new offer for subscription in May 2019 to raise up to £20 million with an over-allotment facility of a further £10 million.


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Annual Financial Report - RNS